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Paychex Misses on Q4 Earnings and Fiscal 2014 Outlook

Paychex, Inc. (PAYX) announced after Wednesday's closing bell its fourth quarter and fiscal 2013 results showing increased expenses shadowed rising revenue in its payroll services and human resources businesses. Although revenue was roughly in line with consensus, quarterly profits were less than expected.

For the quarter ended May 31, Rochester, New York-based Paychex reported revenue of $575.3 million, up 6 percent from $540.7 million in the year prior quarter. Net income totaled $123.5 million, or 34 cents per share, essentially matching the comparable quarter of fiscal 2012.

Wall Street was anticipating earnings of 38 cents per share on revenue of $586.0 million.

Paychex processes payroll, manages employee benefits and provides human resource services. Payroll services revenue, which makes up the lion's share of total revenue, increased 4 percent from $369.5 million in Q4 fiscal 2012 to $382.6 million in the recent quarter. The quarterly improvement was far better than the 1 percent increase through the first nine months of the year. Meanwhile, revenue from human resources services grew by 13 percent year-over-year to $192.7 million.

Checks per payroll increased 0.9 percent for the fourth quarter. Revenue per check improved as a result of price increases, partially offset by discounting, according to the company.

While total revenue grew 6 percent, expenses increased by 5 percent. Operating expenses edged up 1 percent to $170.7 million and selling, general and administrative costs rose 9 percent from $186.5 million to $202.8 million.

Also weighing on profits was a 21 percent spike in income taxes to $89.7 million because of settling a state income tax matter.

"The Company continues to invest in technology, creating a robust service for our clients. We have enhanced our mobile technology, recently adding health and benefits information to our mobile applications," said Martin Mucci, president and chief executive at Paychex.

For all of fiscal 2013, Paychex reported total revenue of $2.326 billion, a 4 percent rise from $2.23 billion in fiscal 2012. Net income was $569.0 million, or $1.56 per share, compared to $548.0 million, or $1.51 per share, the year prior.

Looking forward, the company sees fiscal 2014 total service revenue growth between 5 percent and 6 percent. Based on this year's results, that equates to revenue between $2.44 billion and $2.46 billion. Net income is anticipated between 8 percent and 9 percent, equating to a range of $613.5 million and $620.2 million based on fiscal 2013 results.

The sales guidance was short of analyst expectations of $621.0 million.

Shares of PAYX closed trading Wednesday at $37.99 for a gain of 1 percent ahead of the earnings release and are up 22 percent in 2013 through the close. In extended trading, though, shares were losing ground, trading down more than 2 percent at $36.85 on the disappointing outlook.

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